How can directors and officers build resilience?
During times of crisis, directors and officers are expected to react quickly and with agility to mitigate the effects of supply-chain disruption, drops in consumer demand, and office closures on balance sheets.
Responding to a crisis is no easy thing, but if directors and officers are deemed to have made mistakes in the development of appropriate risk management and business continuity strategies prior to a crisis, they could face actions from a broad range of stakeholders including employees, customers, creditors, and regulators.
Although a comprehensive directors and officers liability insurance policy (for private companies this is commonly provided under the umbrella of management liability insurance) can go a long way toward reducing these exposures, the directors and officers of today face risks greater than insurance coverage alone can protect. So what can businesses do to sandbag against the impact of the risks faced by directors and officers? Let’s explore some key areas that, if strengthened, could help improve resilience.
Educate directors and officers
Developing a thorough orientation for new directors and officers is essential. As well as providing an ongoing education programme for all directors and officers about the company’s business lines, its competitive and regulatory environment, and the legal arena in which it operates. Directors and officers should be well informed on:
- Shareholder report and proxy statements (if relevant).
- Internal guidelines such as conflicts of interest, accounting and financial integrity (bribes), as well as harassment and discrimination.
- Compliance programs to detect and report violations of law.
- Internal controls such as receiving periodic reports from auditors.
- Cyber security controls.
This is of course by no means an exhaustive list, but it’s important to note that these conditions constantly change, so the need for education is continual.
Review your meetings
Reviewing practices related to board or senior executive meetings can help by demonstrating that any action taken by a director was an informed decision based on a thorough, well-documented investigation of all relevant facts reasonably available and applicable law. Consider reviewing:
- Scheduling – Establish a regular meeting schedule, communicate the dates to directors with plenty of notice and encourage regular attendance to keep directors informed and to provide the opportunity for meaningful input into the decision-making process.
- Minutes – One of the most important, but often neglected areas of D&O liability loss control. An accurate set of minutes should clearly set out what occurred at the meeting and include any limitations placed on any action taken or authority granted, and identify any decision not to act.
- Presentation of information – Provide a detailed agenda, background information, and minutes of previous meetings to enable directors to analyse all available information before discussing the issues.
- Conduct of meeting – Keep them unbiased and encourage open discussions with active questioning.
Maintain employment practices
Employment-related claims represent a high-visibility, fast-growing area of D&O liability. In an increasingly litigious society, employment practice allegations action against the company or one of its directors, such as discrimination, unfair dismissal or failure to consult, can result in astounding settlements. The following can help prevent employment claims:
- A proactive, well-staffed, quality human resources department (or external H&R support).
- Creating, maintaining and monitoring legally sufficient standards and consistent practices.
- Directors and officers setting the tone by establishing and enforcing guidelines and policies to protect against all forms of discrimination, including harassment.
- Conducting regular educational programmes on today’s workplace environment.
Navigate legislation and put in place procedures to protect you, your employees, and your business.
Building directors and officers resilience
We all make mistakes and if you have a senior role, there are considerable risks, especially as there’s increasing legal and regulatory focus on personal accountability. Whether your business is large or small, you could be at risk and the potential liability can be severe.